The revised auditor reporting standards issued by the International Auditing and Assurance Standards Board (IAASB), which include disclosing the name of the engagement audit partner, might create a conflict between US rules and the international standards.
The IAASB final standards are intended to enhance the relevance of audit reports and transparency in the financial reporting chain, a long-standing demand of investors.
Among the measures to improve the auditor’s report, IAASB rules include a section to express key audit maters (or additional information subject to the auditor’s professional judgement); and notably, the disclosure of the engagement audit partner who conducted the work.
Such requirements are mandatory to listed companies and voluntary for non-listed businesses.
According to the general provisions of ISAs (or International Standards on Auditing) an auditor may be required to comply with additional regulatory requirement, as well as the international standards.
"The ISAs do not override law or regulation that governs an audit of financial statements. In the event that such law or regulation differs from the ISAs, an audit conducted only in accordance with law or regulation will not automatically comply with ISAs," the standards’ guidance state.
The guidance also states that an audit can be conducted in accordance with both, performing additional audit procedures to comply with the relevant standard and the national law.
As the Association of Chartered Certified Accountants (ACCA) head of auditing practice David York told The Accountant, that guidance doesn’t clearly address the conflict between laws and ISAs.
"An easy -but incredibly odd- auditor’s report could say ‘complied with ISAs except for this non-disclosure’," York said.
The guidance also estates that in rare circumstances, the auditor would be allowed not to sign off the audit report if that creates a personal security threat. But this does not include the threat of legal liability or professional sanctions.
However, the guidance indicates that the law or national standards of a given country may establish further requirements that are relevant to determine whether or not the disclosure of the engagement partner is compulsory.
"The guidance was intended to make sure that auditors did not use some spurious reason about personal security," York said.However the last bit of the guidance could be a hint, according to York, that if the law prevents the disclosure there might be a way around.
"But it is too woolly, I think law preventing disclosure would be rare," he added.
PCAOB standard-setting agendaIn August 2014 the US Council of Institutional Investors (CII) urged the Public Company Accounting Oversight Board (PCAOB) to include this issue on its standard-setting agenda.
The CII was reissuing a previous call, when the PCAOB discarded the idea of requiring auditors to sign their reports on a mandatory basis.
PCAOB chairman James Doty told The Accountant in a July 2014 interview that he personally saw the need for the auditors to have at least an option to sign their reports.
"All the major markets, except the US have it. Auditors are living with it in most countries around the world except here," Doty said. "We’re not expecting them to sign; we are giving auditors alternatives about whether further to disclose the name."
In opposition to the investors’ view, the US audit profession has showed so far little support for the idea of a mandatory signature on the audit reports.
The American Institute of Certified Public Accountants vice-president firm services and global alliances Mark Koziel told The Accountant in a 2014 interview:
"What value will it bring to the end-user to have the engagement partner physically sign the audit report with their names instead of the name of the firms? Auditors are already doing the best job they possibly can and signing their name is not going to raise the level of quality of the audit."
The US Center for Audit Quality executive director Cindy Fornelli noted that national policymakers are pursuing more transparency in this area.
"The PCAOB has said it will release a supplemental request for comment on a proposal that would require disclosure of the engagement partner and others involved in the audit, either in the audit report or in a separate form to be filed with the PCAOB," she said.
The PCAOB’s standard-setting agenda has been recently updated to discuss this issue during the first half of 2015.
The IAASB wasn’t immediately available for comment at the time of writing.